Zillow Group Inc (Z) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Zillow's first-quarter fiscal year 2012 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference may be recorded. And now it is my pleasure to the call over to RJ Jones, Investor Relations Officer for Zillow. Sir, the floor is yours.

Good afternoon, everyone. This is RJ Jones, Zillow's Investor Relations Officer. Thank you for joining our conference call to discuss our financial results for the first quarter of 2012. Presenting today are Spencer Rascoff, Zillow's Chief Executive Officer, and Chad Cohen, Zillow's Chief Financial Officer.

As a reminder, today's discussions will include predictions, estimates and other information that may be considered forward-looking statements under the Private Securities Litigations Reform Act of 1995. These statements may include, but are not limited to, Zillow's expected financial performance, as well as Zillow's strategic and operational plans, anticipated future products and services, and estimated market demand, along with additional examples and metrics that were contained in today's earnings release.

These statements are subject to risks and uncertainties, and actual results could differ materially. For listing of these risk factors, please refer to our form 10-K filed with the SEC. On our call today, the non-GAAP financial measure adjusted EBITDA will be referred to simply as EBITDA, which excludes share-based compensation.

We have provided a GAAP to non-GAAP reconciliation within today's earnings release, including EBITDA to net income, the most directly comparable GAAP financial measure. And now I'd like to turn the call over to Spencer Rascoff, Zillow's Chief Executive Officer.

Thank you, RJ, and thank you all for joining us today to discuss our first-quarter results. We are off to an excellent start in 2012, with significant growth during the quarter, and significant milestones achieved on mobile, in our marketplace for real estate professionals, and with our rentals marketplace. Our results indicate strong demand for our products from both consumers and the real estate professionals who serve them.

I'll start by reviewing our results and then discuss some recent catalysts that support our growth and extend our leadership position, including our pending acquisition of RentJuice, a San Francisco-based provider of rental management software for landlords, property managers, and rental brokers. We just announced its opposition today. Then I'll turn the call over to Chad, who will go into more detail on our financial results, and provide our outlook for the second quarter.

Turning now to our results, during the quarter we once again broke records in quarterly revenue and usage across mobile and web. Total revenue for the first quarter was $22.8 million, increasing 103% compared to the same period last year. This marked the sixth consecutive quarter of over 100% year-over-year revenue growth.

Our marketplace revenue category, which includes our local subscription-based Premier Agent business, as well as Zillow Mortgage Marketplace, increased 141% versus last year to $16.6 million. Marketplace revenue now comprises 73% of total revenues, up from 61% in the same period last year. A desirable mix shift given the more highly predictable nature of marketplace revenue.

Our display revenue category, which comes primarily from home-related national brand advertisers, was $6.2 million in the quarter, 42% higher than last year. Both revenue categories experienced record high performances during the quarter.

In addition to revenues, usage of our mobile apps and websites continue to rise significantly. During the month of March, 32.4 million unique users visited our owned and operated mobile apps and websites, which is an all-time record, and represented growth of 67% over March 2011. Mobile usage continues to be a standout growth category for us, and during the quarter, we hit a substantial milestone.

More homes are now viewed on Zillow on a mobile device than on our website. This translates to 155 million homes viewed on mobile during the month of March, or 57 homes viewed every second of every day. Each home viewed on Zillow is an opportunity to connect active home shoppers with a Zillow Premier Agent, and this growth directly benefits our revenue from mobile.

Our financial results in Q1 exhibited solid execution as we exceeded our outlook for revenue and EBITDA. Flow through of high than expected revenue led to EBITDA of $5.4 million in the quarter, representing a 24% EBITDA margin.

These results demonstrate the leverage potential in our model over the long-term. We have previously discussed the 30% to 35% EBITDA margin at a $200 million to $250 million revenue run rate, and that the road to that margin level would not be smooth. We have had some quarters without performance on margin, and then in subsequent quarters our investments would increase, thereby reducing margin in the quarter.

Q1 was a quarter of outperformance on margins due to high revenue. But as Chad will elaborate on in a moment, we are making long-term investments for our future growth which will impact our end quarter EBITDA margins for the balance of the year. We've talked before about how our living database of more than 100 million homes mix is highly relevant to consumers throughout a long home-related lifecycle, and not just during the process of buying or selling a home.

Zillow has robust consumer and professional marketplaces around homes for sale, homes for rent, and mortgages. We see potential to those other home-related marketplaces in adjacent categories in the future. To do this well, it's important that we continually enhance and improve our foundational database with accurate, up-to-date information from reputable sources.

In addition to Zestimates and Rent Zestimates on 100 million homes, we receive listing and sale information from hundreds of brokerages and from hundreds of multiple listing services across the country, and rental listing information from thousands of sources. Additionally, nearly one-third of all homes in our database, 31 million homes, now have been edited and improved upon by homeowners and real estate agents.

This data makes Zestimates significantly more accurate, and creates unique and valuable content for consumers that can't be found anywhere else. Zillow is now the number one real estate website according to comScore, and our Yahoo! Zillow Real Estate Network is the largest real estate advertising network on the web. That said, our brand still has significant potential to grow its reach.

Our data suggests that Zillow's brand awareness is in the 20% range, meaning that despite more than 32 million monthly unique visitors, approximately 80% of Americans are not yet familiar with the Zillow brand. We believe that over time, appropriately targeted advertising can lead to wider brand recognition and increased revenue. In 2012, we plan to embark on thoughtful advertising in various mediums that can effectively and smartly grow our business and brand awareness long-term.

In a moment, Chad will provide some information on how to think about the size of the marketing investment we'll be making in 2012. As I mentioned a moment ago, one of the key drivers of our growth and competitive advantage continues to be the ongoing revolution in mobile computing. Today, more consumers are buying smartphones and tablets than PCs.

With more computing time and activity shifting to mobile, categories such as real estate that are enhanced by location, will see even greater mobile engagement as consumers seek information on location in neighborhoods and while viewing homes. Zillow greatly benefits from these trends. Anticipating the shift several years ago, we committed ourselves early to build a leadership presence on mobile, including a sustainable monetization model.

We developed, launched, and enhanced apps across every meaningful mobile platform that now includes 10 distinct apps across iOS, Android, BlackBerry, Windows Phone 7, and Kindle Fire. We provide different apps for different stages of a consumer's home-related lifecycle, including real estate apps across all major mobile platforms, mortgage apps across iOS and Android, and more recently, and Android app for renters which we just introduced earlier this week.

This app is the only rentals app where users can access a rent Zestimate, identifying fair market rent for a specific property. They can also draw custom search boundaries with the touch of a finger or, using Android's voice search capability they can quickly search Zillow's database of rental listings in an area. Over the past year we've grown our mobile presence from four distinct mobile apps to 10, and we continue to innovate and mobile product development.

Mobile is also one area where we are consistently spending on advertising, as we view growth and widening our lead in this area to be extremely important. Today, more than 40% of our weekend usage comes from a mobile device. This is up from 28% when we first filed to go public a year ago. Another important outcome of our mobile leadership is our ability to monetize across our entire mobile platform by enhancing, not intruding, on our users' experience.

In our real estate apps, for example, home shoppers can browse real estate listings and find and directly connect with local Premier Agents for more information. For Premier Agents, this is a terrific source of motivated buyer contacts. And it's great for consumers who view these ads as valuable content, providing the ability to instantly reach out to a local professional in the midst of shopping. Few media models are able to integrate advertising in this meaningful way.

On Zillow Mortgage Marketplace apps, the monetization model is different, but just as effective. When a borrower searches for and clicks on a customized loan quote from a lender, we are paid on a cost per click based on the loan value and the quality of the borrower. Lenders tell us they love Zillow Mortgage Marketplace because they aren't paying for blind leads, and consumers get the benefit of real quotes while they remain anonymous and in control until they choose to contact a lender.

It has been less than year since we introduced our first dedicated mortgage app, and already about one-quarter of Zillow Mortgage Marketplace usage is on mobile. Now I'll turn to our marketplace businesses and discuss important elements and milestones. First, starting with our rentals business, today we announced a definitive agreement to acquire RentJuice for $40 million in cash. This acquisition represents a major leap forward for the professional side of our rentals marketplace.

RentJuice provides rental relationship management software for landlords, property managers, rental agents and rental brokers. The company is based in San Francisco with 31 employees. As this is our largest acquisition to date I'm going to take some time here to explain what this means for Zillow.

The way we approach marketplaces has been consistent in the real estate mortgages and now rentals verticals. First, we create a multi-platform consumer product which attracts millions of users. Then we create ways for professionals to connect with them, and provide tools to those professionals to enhance the way they communicate with consumers. Then we start monetizing the marketplace in ways that benefit consumers and professionals.

We've followed this recipe successfully before, and this is how we are now approaching the rentals marketplace. In rentals, first we established our consumer offering with hundreds of thousands of listings and rent Zestimates. Then we developed the Zillow rent index this quarter, building off our proprietary rent Zestimate, as way to grow awareness of a rental offering.

This is also a great reference for renters and property owners to keep a pulse on the market. As result of these products, more than 5 million current renters used our mobile apps and websites in March. From what we learned on the consumer side of the market, we know that the needs of prospective renters include accurate and up-to-date listings, good market pricing data, and a map base easy to navigate and search on mobile and the web.

But that's only part of the story. What's critical to understand about the rentals market is the speed of unit turnover. Compared to the for sale market, rental unit turnover is six times greater on average, and the figures are higher in some major metro areas. Rental professionals are thus often inundated with demand, making it a daunting task to handle the pace and volume of leads, and managing communications with prospective tenants.

To be competitive in the rentals market, professionals need to be efficient in their marketing processes to attract and retain stable renters and reduced vacancy rates. Once we better understood the rentals market, it became clear to us that just like the real estate market, offering great marketing and productivity tools to professionals would allow us to create a better consumer experience and to better monetize the marketplace down the road.

RentJuice is a leading rentals innovator of productivity services for property owners and leasing agents, having been squarely focused on this vertical for the last three years. This acquisition allows us to substantially extend our market position and relevance to rental professionals quickly. Simply put, RentJuice's value proposition beautifully addresses the needs of rental professionals.

Their subscription-based suite of marketing and productivity tools for rental professionals includes a CRM for managing leads and relationships, rental listings management software and syndication across the web, consumer credit screening, and a common secure application for renters. With this acquisition, Zillow is now positioned to not only better serve the tens of thousands of professionals in the rental space, but also to dramatically improve the quantity and quality of rental listings for consumers on Zillow.

Zillow brings to RentJuice huge traffic among renters and rental professionals. RentJuice brings Zillow a huge head start in the tools and technology which those professionals need to service their clients. Together, we are in a much better position to address the multi-billion-dollar market opportunity which rentals presents.

With this unequaled technology foundation now in place for rentals, we are well on our way to building significant skill and leadership in creating the largest online and mobile rentals marketplace. Based on our research, we have expanded our addressable market in rentals from $2 billion per year in advertising to approximate $4.5 billion a year, which includes marketing and productivity tools for rental professionals.

In addition to the terrific suite of products offered by RentJuice, we were incredibly impressed with their team, and we are excited to soon welcome them to Zillow. In a few minutes, Chad will discuss some financial details regarding the acquisition and integration of RentJuice.

Next, shifting to our Premier Agent business, we continued to gain momentum and evolve our program from a one-size-fits all advertising offering to a robust services-based platform for real estate agents. First, I am going to take a moment here to discuss our current structure, and how demand, inventory, and pricing come together to drive our revenue. Then I will shift gears to discuss how we are evolving the program.

As a reminder, Premier Agent currently consists of three tiers. Our most popular and long-standing tier is Platinum Premier Agent, which is comprised of local real estate agents buying six-month subscriptions for zip code-based advertising.

Our subscription inventory is sold on a share of voice model, which allows from two to eight buyer's agents per zip code, depending on the share of voice an agent decides to purchase. Pricing for our Platinum Premiere Agent subscription is variable, driven by local traffic and contacts on Zillow and local home values. Inventory availability and pricing for a Platinum Premiere Agent subscription gets reset when a contract reaches its six-month renewal point.

As we have shared previously, at contract renewal points we may raise prices market by market based on increasing traffic and consumer contacts, and increasing demand from agents. Due to consistent growth in usage across the web and mobile during the six-month subscription term, our Platinum Premiere Agent subscribers receive exceptional value through an increasing number of contacts delivered to them, leading to a high ROI on their advertising spent the Zillow.

In our effort to capture more advertising spending, we began to explore if alternative pricing models could lead to more opportunities for us to increase wallet share. Starting in the first quarter, we began testing an impression-based inventory model for Platinum Premiere Agent subscriptions. Selling advertising subscriptions on a cost per impression, or CPM basis, allows us to convert our inventory from the share of voice limits we currently have into more accessible and consumable amounts for subscribers.

In this model, inventory can be made available to many more agents, leading to significant potential for us to accelerate the number of agents buying Platinum Premiere Agent subscriptions in each zip code. Keep in mind that we are in the very early stages here, but we're encouraged by the prospects of shifting to a pricing model which more directly ties our advertising revenue to our usage growth, and in turn, the value we deliver to our subscribing agents.

Often, our Premier Agent count gets assessed in looking at potential market penetration when segmenting the real estate agent market by participants. Our Premier Agent count in the first quarter reached 18,616, compared to 10,710 this time last year. While increasing our agent count is important to our growth, it is only a part of the story behind the increase in our revenue.

Many agents in our Platinum Premier program buy placements in multiple zip codes. In fact, this is roughly 40% of bookings, and as a result, the subscribing agent count does not grow at a similar rate as our revenue grows. So while we have an opportunity to increase Premier Agent count via CPM pricing, we will continue to look at Premier Agent revenue for a more holistic picture of how the program is performing.

Meanwhile, we've previously discussed that we are in the midst of a strategic expansion of the Premier Agent program and its benefits. This program is expanding from simply selling advertising to offering a suite of marketing and business services for real estate agents. On this note, we recently launched Agent Hub, a free online portal on Zillow where agents can view ROI metrics on their advertising, manage listings, access and use our custom CRM platform, and attend webinars and online training to help grow their business.

We offer the Agent Hub functionality for free to all agents, Premier or not, as part of our strategy of increasing our relevance to real estate professionals. By becoming the central hub for an agent's marketing wheel, we can significantly increase our total addressable market potential, and create new revenue opportunities.

While we are in just the beginning stages, we will be building out many new SaaS spokes in the wheel from Agent Hub over time, including Premier -- premium services, which represent a tremendous opportunity for us to gain wallet share via a freemium model.

Supporting our ongoing commitment to grow our Premier Agent program, this month we announced the extension of our exclusive advertising partnership with Yahoo!, under which Zillow manages advertising sales for Yahoo! Real Estate and operates the Yahoo!/Zillow Real Estate Network, which as we noted earlier, is the largest real estate network on the web.

Yahoo! Real Estate is the number two real estate website behind Zillow in terms of unique visitors, according to comScore. Zillow Platinum Premiere Agents will continue to get the benefit of having their listings and ads distributed across Zillow.com, Zillow mobile and Yahoo! Real Estate.

Another commitment to supporting our growth in the Premier Agent business is the opening of the Zillow sales office in Irvine, California. The sale center will house up to 80 new inside sales people by the end of the year. This office will also accommodate about 20 people from Diverse Solutions, which is the company we acquired last fall that helps real estate agents improve their individual websites and market their businesses.

For Zillow, Orange County represents an untapped market for inside sales talent and a significant opportunity to increase revenue on the Premier Agent product via a more robust sales team. In a moment, Chad will walk through some details of the financial impact we expect related to this opening.

Turning now to Zillow Mortgage Marketplace. This unique offering continues to showcase our incredible potential for growth by developing marketplaces that extend from our database of all homes. During the quarter we saw significantly increased consumer activity in Zillow Mortgage Marketplace, with more than 2.5 million consumer loan requests during the quarter.

For context, this is more loan requests that in the full year of 2010, and we are on track to more than double the 5.5 million loan requests from 2011. We attribute this growth to a couple of factors. First, increased awareness of our mortgage offering, especially on mobile, where we launched our second mobile mortgage app on Android during the quarter. And second, historically low mortgage rates along with more affordable home prices contribute to rising consumer demand from both buyers and homeowners looking to refinance.

Continued growth in Zillow Mortgage Marketplace reflects Zillow's increasing relevance to more consumers in the lifecycle of homes that is strengthening our competitive advantage. And keep in mind, the overall market opportunity in home financing is larger than the residential real estate opportunity, so we have considerable runway here.

Before I pass the call over to Chad for a deeper dive into our financials, I'd like to briefly discuss how Zillow's thought leadership is making a positive impact on the fledgling housing recovery. We recently held our the first ever national housing forum in New York, co-hosted by Columbia University, and the Progressive Policy Institute.

More than 200 leading economists, policymakers and analysts and housing media converged to discuss the current state of US housing and how to facilitate our road to recovery. The event, hosted by our Chief Economist Dr. Stan Humpfries, was extremely well attended and received broad media attention.

Hosting events like this, in addition to widely distributing our extensively validated data and research, continue to be a cornerstone of our marketing and branding efforts, and help to solidify Zillow as the preeminent source of unbiased housing information.

To summarize, looking forward from today, you can expect to see more evidence of our strategic evolution in the quarters ahead as we work relentlessly to extend our lead on mobile and on the web as the most trusted and vibrant home-related marketplace. With less than 1% of overall agent advertising spend, we will continue to aggressively pursue a substantial market opportunity we have beyond the $6 million annually spent by the real estate agents on advertising.

As we build out our Agent Hub with a suite of marketing and productivity services, in addition to our high ROI advertising program, we have the opportunity to consistently grow our subscribing agent count and increase our wallet share by addressing critical needs of real estate agents as they manage and grow their business.

Our acquisition of RentJuice represents a significant transformation in the development of our rentals marketplace. The newly acquired technology foundation, in tandem with our database of all homes, catapults our service offering years ahead of where we are today, and now enables us to pursue multiple paths to monetization.

Our capabilities to address the $4.5 billion market opportunity in rentals is unmatched by other models in our competitive landscape, and you can expect we will continue to empower rental consumers and professionals by offering a suite of marketing, productivity, and relationship management services.

You can also expect we will continue to innovate and create relevant products and just as we've done with RentJuice, Diverse Solutions, and Postlets, we may also opportunistically execute strategic acquisitions that advance our capabilities and enhance our portfolio of products and services that we offer in our growing marketplaces.

I'm thrilled with Zillow's excellent performance in this first quarter. We remain very excited about the massive market opportunities ahead for us as we invest in our growing businesses. Our continued growth, record performance and increased profitability that exceeded our earlier outlook indicate the significant potential we have for incremental profitability beyond our target model.

I want to thank the entire Zillow team for their diligent focus on execution as we seek more ways to delight our tens of millions of users. Now, Chad will take you through the financials.

Thanks Spencer. As Spencer mentioned, I'm going to run through our first-quarter results in more detail, then I'll discuss our outlook for the second quarter. I'll also spent some time today giving a little more color on items that will impact the second quarter and remainder of 2012.

Before I talk about financial results I just want to reiterate Spencer's points on our traffic, which surpassed 32 million unique users in March. For the first quarter traffic grew 84% year-over-year to 31.8 million average monthly unique users. Over 40% of our traffic on the weekends this quarter on a visit basis came from our mobile products.

Looking at our top-line results now we had an excellent first quarter, posting record total revenues of $22.8 million, representing an increase of 103% year over year. Compared to our outlook, we exceeded the $21.5 million high end of our range by 6%. The positive variance was primarily related to greater revenues in our display category than we expected, which grew 42% year-over-year and continued a recent trend of strength in that category.

In our largest revenue category, marketplace, revenues reached $16.6 million, representing 141% year-over-year growth and 73% of our total revenue. The increase in marketplace revenue was a function of growth in our Premier Agent subscriptions and increased prices.

We added over 2,800 Premier Agents in the quarter, the most in any quarter thus far, representing a net increase of over 7,900 Premier Agents from this time last year. On pricing, as noted by Spencer, growth in both our traffic and contact volumes are two of the primary determinants of our Platinum Premiere Agent pricing.

Also as a reminder, in the first quarter of 2011 we ended offering 12-month subscriptions to our Platinum service, so as of February 2012 the only offer a six-month subscriptions, which give us more flexibility and pricing, given that we continue to see very healthy growth in our traffic metrics.

Within our marketplace revenue category, Zillow Mortgage Marketplace CPC revenues continue to grow nicely. Although we don't break out these revenues separately, we can report that in the quarter over 2.5 million loan requests were submitted by our consumers across web and mobile, as compared to just under a million loan requests in the same quarter last year. This growth in user adoption signals increased relevance of the platform amongst borrowers, and a validation of the growing brand presence in the mortgage space.

Looking now at our display revenue category revenues were $6.2 million, increasing 42% year-over-year, or representing 27% of our total revenues. The growth in our display business resulted from greater levels of commitment to advertising placements with us by our industry-endemic advertisers, primarily real estate brokers, home builders and lending institutions.

This result exceeded expectations with the positive variance reflecting both the lower level of predictability in this business, as well as the fantastic user experience across our platform on web and mobile which led to increased traffic and impression for our advertisers. Even though display continued to become a smaller proportion of our revenues, its contribution margin remains higher than in marketplace businesses, which results in a strong flow through from incremental sales to operating profit.

Moving onto our expenses. Total operating expenses were $21.1 million in the first quarter as compared to $12.1 million in the same quarter last year. As a percentage of revenues, almost all of our operating expense categories were lower, with the exception of our general administrative costs, which were higher when compared to last year's first quarter, due primarily to public company costs. Employee-related costs, another primary driver of the total increase in operating expenses as we grew headcount by over 50% year-over-year.

Now I'll turn to each major expense line item, starting with cost of revenues. For the first quarter our cost of revenues were $3.4 million or 15% of revenues, as compared to $1.8 million or 16% of revenues in the same period last year. With the higher revenues we experienced positive leverage on our fixed expenses in this line item related to IT headcount and data center costs, but also higher absolute credit card fees, and higher revenue sharing costs related to our marketplace revenue category growth.

It is also important to note here that in the prior year's quarter we only had a partial period impact of revenue sharing costs associated with our strategic partnership with Yahoo!, which commenced in February 2011.

Next, sales and marketing expenses were $8.3 million or 36% of revenues, as compared to 49% of revenues or $5.5 million in the first quarter of 2011. Growth in our sales team and increased commissions related to growth in revenues were primary drivers of the increase in this expense category. Also, as Spencer noted earlier, we continue to increase our investment in advertising to support our growth initiatives.

Our testing thus far has provided us with valuable insights which we believe warrants continued investigation with additional emphasis and spending on particular channels. So for competitive reasons we will not get into specifics, we anticipate increased spending on advertising in the coming quarters as a direct result of what we are learning. I will cover more on the expected spending later on in our outlook.

Moving on to the next expense line item, technology & development costs were $5 million or 22% of revenues, compared to $3 million or 27% of revenues compared to last year. During the quarter we continued to grow our engineering headcount to support current and future product initiatives.

As we have discussed previously, as we evolve our premier agent business offering into a suite of marketing and productivity services, we will see increased levels of investments bring outstanding products services to market. Lastly, G&A costs were $4.4 million or 19% of revenues, as compared to the same period in the prior year at $1.8 million or 16% of revenues.

Similar to what we've discussed before this area, the year-over-year increase in absolute dollars is mainly attributed to overall growth in the business including general public company related costs, as well as incremental headcount to support a growing infrastructure. We expect to invest in this area as appropriate to ensure that the right infrastructure for growth is in place. Though we expect these costs will decrease as a percentage of revenue over time.

Turning now to profitability. Our EBITDA for the quarter was $5.4 million, representing 24% of revenues. This result exceeds the high end of our outlook range for the quarter by $1.9 million. The EBITDA dollar and margin are records for us in the quarter, and indicate the compelling leverage opportunity in our model longer-term.

The outperformance in this quarter can be attributed to revenue growth ahead of our expectations, particularly in our higher-margin display category. On the GAAP basis, net income for the quarter was $1.7 million, representing EPS of $0.06 per share for both basic and diluted shares of 28 million and 31 million shares respectively.

Quickly turning to our balance sheet, we ended the quarter with approximately $98 million in cash and cash equivalents, as well as short- and long-term investments. While we currently have no debt, we entered into an arrangement with our baking partner to expand our untapped $4 million revolving credit facility to $25 million for four years at very cost-effective terms.

This facility allows us to take advantage of the current low rates, and will further strengthen our balance sheet, giving us additional strategic flexibility to pivot quickly if we see opportunities in the marketplace.

Now I will provide a few comments on our outlook for the second quarter 2012. First, our revenue is expected to be in the range of $25.5 million to $26.5 million. This outlook represents 64% year-over-year growth at the midpoint of the range. Next, our EBITDA is expected to be in the range of $3.25 million to $3.75 million. At the midpoint of our range, this represents approximately a 13% margin.

Factoring into the anticipated EBITDA margin are continued headcount growth in our engineering teams as we drive more product innovation, our ongoing testing and advertising, the initial ramp up cost related to our Orange County office, as well as execution and integration costs from the acquisition of RentJuice, and normal operating cost from the partial period inclusion of RentJuice business activities.

Although we are not providing a GAAP EPS outlook for the second quarter, as a matter of housekeeping, we expect a diluted weighted average share count of approximately 32 million shares for the quarter. Now looking at the full-year 2012, as a reminder, we previously provided a view into a few line items here that can help in modeling our future business results.

Revisiting these areas now, we expect to depreciation and amortization for the year to be in the range of $12 million to $14 million, share base compensation to be in the range of $5 million to $7 million, and CapEx and capitalized data content to be in the range of $8 million to $9 million. We expect fourth quarter 2012 basic and diluted share counts to be in the range of $30 million to $32 million, and $32 million to $34 million weighted average shares, respectively.

Looking specifically to the back half of 2012, while we have demonstrated our ability to expand EBITDA margins over the last couple of quarters to approach our target model, we plan to make some important investments for growth during the remainder of 2012 that when combined will have the impact of bringing our full-year 2012 EBITDA margins to levels that are comparable with 2011.

Investments expected to impact operating expenses for the remainder of the year include the following. First, we will be increasing our investment in technology and development by adding our engineering staff in Seattle, San Francisco, and Orange County to support our various growth initiatives, and expect most of these expenses to occur in the remaining quarters of the year.

Second, we expect that our continued testing and advertising efforts will be at higher absolute dollar levels year-over-year for the rest of 2012. Though we do not anticipate substantial near-term returns on this increased spending, we expect lasting long-term positive impacts related to increased awareness and sales.

Third, as we ramp up our hiring effort of up to 80 inside sales people for the Premier Agent business in the Orange County office, this will be at an accelerated pace compared to how we have hired for recent inside sales classes in our Seattle headquarters.

Typical ramp time for an inside sales representative is three to four months. As result, we will not see significant revenue production from these classes until the fourth quarter, or early 2013. As a reminder, our inside sales team sells our subscriptions nationwide, so while the new office is located in Orange County, the scope of their sales efforts include the entire United States.

Last, we expect the acquisition of RentJuice to close before the end of the second quarter, with all of their operations being integrated into Zillow for the remainder of 2012. We will be able to provide more details relating to the business when we report our second-quarter results. Each investment we have outlined here will contribute significantly to enhancing our foundation for long-term growth, strengthen our competitive advantage, and further expand our market leadership beyond 2012.

Before I open up the line to your questions, I just want to echo Spencer's earlier points and say how excited we are with this fantastic start to the year. Zillow had an excellent first quarter 2012, achieving record results in revenues, EBITDA, and net income. We are extremely pleased with our growth, profitability and the progress we're making in our evolution.

And we are very excited about the opportunities to build new marketplaces, expand our addressable market and lengthen our lead as the most vibrant real estate marketplace on mobile and on the web. With that, we would like to up the call for questions.

Thank you, sir.

(Operator Instructions)

One moment for questioners to queue. Mark Mahaney. Citigroup.

Thanks, I had two questions. First could you just talk about the rationale for the funding for the acquisition, why all cash? And secondly, it sounds like you are doing -- trying a couple of different experiments in terms of pricing, you not only tiered the Premier Agent program, but you are also considering CPM. How much CPM-based pricing -- how much flexibility do you think you have in the different types of pricing formats in the future? Do you think that you can sustain both of these types of approaches, or is it something whereby you think within a year you may just switch fully to a CPM model if you think that's superior? Thanks.

Thanks, Mark, this is Spencer. So, on the second question first, where we are now is we're experimenting with selling on an impression-based model instead of a percent of exposure model. There's some advantages to that in terms of ease of explanation to the advertiser, and also more directly tying our revenue and our business results to traffic and to the value that we are delivering to the advertiser.

I think you'll see us always continue to experiment with different types of sales products and different pricing models, but in general, the whole platform works better if the bulk of the advertisers are on a single model. So, we will see what the final -- in the final analysis with results of these tests are. But I think to answer your question directly, generally speaking you see us on a single model, but then kind of on the margin, testing different things to see if there are ways to tweak the program.

And Spencer, the timing? How long do you think it will -- do you have an initial idea of how long you think you'll test this before making a decision on the pricing model?

Not prepared to answer that right now.

Okay.

It depends on how quickly -- it depends on what the results are, is the short answer. If the results are overwhelming then quick, and if not then we can test it. In terms of how we fund the acquisition, there are a lot of ways to do an acquisition like this. I think we have a very healthy balance sheet with a pre-deal around $100 million cash, after the deal around $60 million in cash after we close in a couple weeks.

For us, cash is expeditious and stock is dear. As you know, we think we are building something for the long-term here. And therefore, we've always been straightforward with investors and analysts about how dilution sensitive we are. And so for reasons of expeditiousness in acquisition, as well as jealously guarding our equity, we pursued a cash acquisition in this case.

Thank you, Spencer.

Aaron Kessler, Raymond James.

A couple questions. First, good quarter on the mobile stats, can you give us idea of how conversion and monetization for mobile are tracking versus desktop? Also on the rental side with the acquisition, I assume this is mostly in the home rental space, but maybe can you -- any interest in the apartment rental space as well, it seems like that's a market that's still very inefficient?

First on mobile, we are very fortunate that we monetize incredibly well on mobile, right from the beginning, so we are not an Internet company that's struggling to scramble to figure out how to take a PC-based ad paradigm and adopt it to the -- or adapt it to the small screen. The way we monetize on mobile is the same way we monetize on the web.

Our marketplace revenue for Premier Agent connects consumers or home shoppers with Premier Agents, our Zillow Mortgage Marketplace apps are on a cost per click basis, and then we also have targeted display advertising on mobile as well. To give you a stat, around a third of all contacts to Premier Agents are coming from home shoppers using Zillow on a mobile device. So mobile is a significant contributor to revenue for us.

Remember when a Premier Agent purchases ad inventory from us, they're appearing as a Premier Agent on Zillow.com, Zillow mobile, so all the apps and mobile websites, and Yahoo! Real Estate. So, you're premiering on all of them and we think that -- and we know that about a third of the contacts coming from mobile. In terms of -- I'm sorry, what was your second question?

Apartment rentals versus.

Thank you. So yes, apartment rentals is absolutely in our sights. In fact, we already have many, many apartment listings of apartments for rent on Zillow. The tools that RentJuice provides work incredibly well for apartment rentals, whether it be through an apartment management company or a rental broker.

Just to take a step back for a second to describe the rentals opportunity for us and why we are excited about this acquisition. 70% of all movers every year are renters. So you can't really be leading real estate website without a significant rental business. At Zillow, we start with the consumer, so we've gone and we've got over 300,000 rental listings on Zillow and we built mobile apps for rentals. And so already have about 5 million monthly rental shoppers, people using Zillow to look for a rental either on the web or on mobile, 5 million a month.

We then turn our attention to the pro tools that consumers -- or that professionals would use to manage communications with those renters, and there we looked at this is as a build versus buy decision, and we evaluated many possible candidates, we certainly looked at potentially building some of these tools ourselves. And we decided that RentJuice accelerates our product plan by several years because they've been squarely focused on this vertical and they are one of the leading providers of rental property management software and online marketing software for rental professionals.

That's how we are approaching it, and now we think having those tools available to professionals will help improve the consumer offering on the consumer side of the marketplace in terms of listings quality, and the inability for that consumer, that rental shopper, to be assured of rapid follow-up from the rental professionals. So, one side of the marketplace benefits the other, and that creates a network effect, and a virtual cycle between consumer and professional.

Finally just on the marketing front, is -- does the new marketing plan in response to any competitive dynamics you're seeing, or is it really just to drive that 20% brand awareness higher?

It is to the latter. Aaron, we traditionally lean to building fantastic products here, which has driven traffic to record levels of 84% year-over-year, and 90% of the traffic has been free. The past couple quarters we talked about testing in some areas online, particularly mobile. And that's driven quite successful metrics on the mobile side that Spencer talked about. 50% of our homes now are viewed on mobile.

So, even with all that success, and some of the testing we've been doing on mobile, we are still only at 20% awareness to your point. So what you're doing here is essentially expanding beyond the Phase I level of testing that we did in the past few quarters onto more online channels and offline channels, at more mature levels which we hope will drive even greater long-term growth potential.

Great, thank you.

Ron Josey, ThinkEquity.

Great, thanks for taking my question. So, quick question on the Premier Agent net ads, and specifically the 8% growth that we saw year over year on what were relatively tough comps. Wondering if you could just provide some more detail there? Do you think the strength was due to seasonal as we enter the spring/summer selling season, or just the housing recovery is doing better, or just that, as you've said many times that very low penetration overall? And then a quick follow-up on just the marketing spend. Do you think this is something that's more of a go forward basis needed every year, or is this a build up brand awareness, hopefully it sticks, and that's it? Thank you.

Thanks, Ron. We added 2800 Premier Agents, approximately 2800 Premier Agents, in the quarter sequentially, which is our -- most we've added so far in any quarter, and 7900 year-over-year. Part of that is when we introduced the two new tiers in the fourth quarter, it expanded the number of products that we can sell to a greater audience of agents. So we can -- we now have three different products that we are selling and part of that is just diversifying the one-size-fits-all Premier product that we used to sell.

Second, I would say that in the fourth quarter we invested pretty significantly in our sales force, and that's starting to pay off in the first-quarter as many of those new reps that we hired didn't have really a book of business. So, what they are doing is, they're selling to new PAs as a result. And also we tweaked our compensation structure little bit for the sales reps so that we incentivize them a little more to getting new business and new PAs. So that's why you are seeing that uptick in the PA number.

In terms of marketing, well, we're just going to have to wait and see, because we are just essentially expanding the testing to another level at that at this point. I don't think we are quite ready to say whether it is going to be a long-term investment there, but certainly over the next few quarters we see ourselves moving beyond just the lower levels of testing that we did in the prior two quarters.

Great, thanks a lot guys.

Michael Graham, Canaccord.

Thank you. Congratulations, guys, on the good quarter. And I just wanted to touch a little bit on the margin guidance and just get a feel for couple things. The first is, Chad, you called out three or four factors, and I'm just wondering, did you call them out in order of the magnitude of the impact that it is going to have on the margins for the next couple of quarters? Is what the best way to think about it?

And then could you give us some color around the level of expenses at RentJuice and -- so we can try to get a better handle on how big that factor would be on an ongoing basis? And then finally, just an update on your philosophy and thinking about how the Company is going to progress towards its target model and the timing of that? Thanks a lot.

Got it, Michael. Thank you your questions, I think I counted three of them. So, first on the guidance question, yes, we tried to order those by magnitude of spend. So, I think that's the right way to think about it. Engineering and advertising, certainly we'll be spending and investing significantly in those areas as we get more engineers to the platform.

Year-over-year, we almost doubled our engineering heads, and we're going to continue to even more aggressively ad engineering heads through the end of the year to focus on building out more of the marketplaces on the consumer side and the professional side. And also the increased levels related to testing of ad spend on more online and offline channels.

In addition to that, we are also expanding our sales platform into Orange County. We plan on adding up to about 80 sales reps through the end of the year, with the preponderance of that coming in the third and fourth quarter of the year. Then ongoing integration costs related to the acquisition of RentJuice. In terms of trying to model out the RentJuice expenses, I think the right way to think about it is there are about 30 heads down in San Francisco.

The structure of those heads is pretty similar to what we have here, with almost half of those heads focused on engineering activities, the other half focused on customer service sales and marketing, and then a few heads to support infrastructure and G&A, so pretty similar. And then, on your third question, in terms of progress to the target model. Yes, we are making significant progress in the model which is $200 million to $250 million in revenues. When we get that level we believe we can reach 30% to 35% margins.

As we've proven in the past couple quarters, last year we delivered 18% margins and an 18% fourth quarter. This first quarter here delivering a 24% margin, we're making really nice progress. But what we're seeing with the guidance, and some of the color we provided on the call, that we plan to invest at more significant levels in the coming quarters, specifically in the second quarter, as well to drive more long-term growth.

Great, thanks a lot.

James Dobson, Benchmark.

Great, thank you for taking my question. First I want to know, regards to the full service platform with the realtors and now the rentals, do you consider that to be a loss leader that would lead to just more adoption of the current services? And then in regards to investment in engineering, is this going to be the significant uptick to attack the more mobile usage as that becomes more important? And should we think of that as being a fixed level for 2012 that you can then build off of next year?

So, thanks, James. On the first question, the way we think about the tools that we offer to real estate professionals, whether it is on the for sale side or the rental side, is a way to increase their level of engagement with Zillow so we can be a more important part of their daily lives and how they run the business.

So for example, last month we rolled a free CRM, really the first free CRM that I'm aware of to the real estate industry, where any real estate agent, Premier Agent or not, can use our CRM to manage their business. To keep track of contacts that they have with prospective clients, to take notes on their conversations of clients to schedule follow-up items, etc. We offer free syndication tools to agents where agents can upload a listing to Zillow and we syndicate that out to about a dozen websites, including Craigslist.

We offer dozens of free widgets for their website, and tabs for their Facebook pages. We offer free training. We offer listings management tools, et cetera. And RentJuice offers a lot of these same tools to the rental trade.

So the reason that we offer all of these things is twofold. First, it is to improve the consumer experience on Zillow. Because to the extent that a home shopper on Zillow has a better expense with a contact a professional, because the professional does a better job of following up with that consumer, well, that enriches the consumer's experience on Zillow, which is terrific for us overall. Secondly, to the extent that we can help that professional convert these contacts into commissions, because we do better job of helping them follow up on them. Well that makes them more likely to buy more media from us.

So yes, you used the term loss leader. I do think that the way we think about it is it's a freemium model. We want hundreds of thousands of real estate professionals using our tools, and then some portion of them will buy products from us, whether it be contacts, customer contacts, or other premium-type titles.

On the mobile point, we are investing extremely heavily in mobile, because it is a great consumer experience. We have a significant lead there, we have much greater mark share on mobile then on the web. Real estate is an interesting category with respect to mobile for two reasons. The first is, it is location-based. So, it's inherently a mobile transaction, it is a mobile shopping experience. So, you'd expect us to have more mobile usage than in other categories.

And secondly, there's less competition on mobile. On the web, there are hundreds of thousands of real estate websites, so even though Zillow is largest the real estate website, we have a lot of competition on the web. Where on mobile, there is much, much less competition than on the web, and so we have much more market share. So that, combined with the fact that we monetized mobile incredibly well, is why we are so focused on it.

Great, thank you.

Chad Bartley, Pacific Crest.

Hi, thank you very much. A couple questions for Chad, I'm sorry if I missed this but your Q2 revenue guidance, does that bake in a contribution from RentJuice? And then regardless, can you give us any sense of maybe how material is for the full year? Then in terms of the margins and how to think about the progression, the rest of the year, is it reasonable to assume that EBITDA margins should increase sequentially in Q3 and again in Q4 to finish around 18% for the year? Thank you.

Hey Chad, this is Chad. Yes, I think the way to think about RentJuice is that they are still in their investment phase, so they're not -- they have an end market product which they are selling, but they would not -- will not be contributing significantly or materially to the second quarter or throughout the year. So, hopefully that's enough color.

We will be publishing financials as required by the SEC within 75 days of closing so you'll have more color on their top and bottom line once those financials come out. Secondly, in terms of projecting what the margins are going to look like through the end of the year, I think that's the right way to think about it. It is slowly progressing to the 18% margin, which is what we're -- which is what -- how 2011 looked like last year, and how we expect 2012 to shake out with the significant investments that we're making through the end of the year.

Okay, great. Thank you.

Brad Safalow, PAA Research.

Hi, thanks for taking the questions. Just a follow-up on RentJuice. It sounds like it is not that large in the marketplace just yet, they don't have a material amount of listings and inventory currently? Is that a fair assessment?

No. That's not, I wouldn't agree with that. They have over a million listings. The way I think about it, I think what Chad was trying to characterize was their revenue contributions to Zillow is not material. Strategically, they're quite material to Zillow. They provide the tool set that we need to the professional side of the rental marketplace which, over time, is going to be extremely material to our revenue, but today in 2012, and certainly in Q2, they are not material to our revenue.

Alright, I just want to understand actually this, so the million listings, the overlap with your 300,000 plus currently, is that -- are you net 1 million post this acquisition?

Because we haven't closed yet, I don't feel great commenting on that. But there certainly will be a lot of listings -- we're going in it with a lot more incremental listings as a result of this acquisition. Now whether it will be in the very near term or over time as we rollout RentJuice's tools to many more tens of thousands or hundreds of thousands of rental professionals, it is too early to say.

But the strategy here, just like we are pursuing on the real estate on the for sale side, is make these tools available to rental professionals and try to increase adoption, again, for the purpose of improving the consumer expense on Zillow. And so that's the strategy that we'll be following here with RentJuice.

Okay, and just in terms of overlap in the agent community, I know markets with there's a significant amount of cash buyers that agents participate in the rental market actually quite a bit. Can you characterize your overlap between their target market, and what you guys have today in your Premier Agent count?

Very low. There certainly are some Premier Agents that also represent rentals, but I think the overlap -- I know the overlap of Premier Agents who are also RentJuice customers is extremely low.

And then just shifting into the mortgage marketplace, you've seen, obviously, tremendous growth in requests. Have you seen any commensurate increase in, or an improvement in the click through rates, so to speak, on those quotes been delivered? Is there anything you can point you for us to understand trends in monetization a little bit better?

Before Chad takes his DMM question, let me backtrack for second on RentJuice. When I talk about overlap on the professional side, that is low. What's not low is interest overlap on the consumer side. So, about a quarter of all Zillow home shoppers are dual tracking, they are looking for for sale and for rent, so it is in extremely synergistic to the consumer experience on Zillow to have a great for sale experience and a for rent experience. So I just wanted to highlight that point on the consumer side of things. So Chad, on DMM?

I guess there's two ways to answer your question. One, traffic -- obviously, the increase in traffic drives more awareness of our Zillow Mortgage Marketplace platform. And we have lots of ways throughout the website to make consumers aware that we have a product to address their mortgage needs. But also we rolled out a number of different mobile products across a number of different platforms to gain awareness.

That traffic growth, and growth of awareness through Mobile and Web, along with the current low rate environment, is, obviously, driving a significant increase in borrower activity of the platform. I guess the right way to think about monetization is that each specific loan request that's put into the system is -- has a dollar value, a CPC, attached to it.

And the range of those CPCs vary on the quality of the loan request that's put into the platform. For example, if there's a loan request that's put in the platform with the low FICO score and a high LTV, that will be a free or $1 CPC versus a loan request that's put into the system that's a little more dear. So, for example, it has a higher FICO score, a better LTV, there's a higher income attached to that to that loan request, and therefore, the monetization of that actual click will be higher.

We haven't specifically talked about click through rates, to your question. But that's the best way to think about monetization of Zillow Mortgage Marketplace. And if you look at the actual user activity that we've seen, 2.5 million requests in this quarter, compared to 1 million, or just under 1 million loan requests, this time last year. That should give you some sense of the direction in which revenues are going with the Zillow Mortgage Marketplace offering.

Okay, so as far as, well -- I guess I could take away, obviously you're seeing great growth in awareness. In terms of actual participation, you're not willing to comment on whether it is better, worse or the same?

We just haven't disclosed that type of information before.

Okay, and my last question, just on your, the CPM model you're testing. Do you guys envision this as a monetization approach that will work in some markets and in other markets you'll continue forward with this allocation/subscription based model, depending on average home price and velocity of transactions in that market?

No. I don't expect that it will be market specific. I don't. I think it will -- I think we will see consistent results across geography and home type. But, that's why you do tests, because he don't know for sure.

Understood. Okay. That's helpful, thank you.

Peter Park, Park West Asset Management.

Thanks, my question was asked and answered.

[Max Corona], Hillside Capital Pardon me, Max, your line is open, please check your mute button.

No questions.

All right. Well, presenters, I'm showing no additional questioners in the queue. I'd like to turn the program back over to Spencer Rascoff for any closing remarks.

Thank you. Thanks, all, for joining today's first-quarter earnings call. We appreciate your interest in Zillow, and look forward to talking to you again soon. Thanks very much.

Thank you, sir. Again, ladies and gentlemen, this does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.